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Inspector Gotcha

After years of Wall Street-friendly Democrats and Republicans
with crossover appeal, of Chuck Schumers and Michael Bloombergs and
Hillary Clintons and George Patakis, New Yorkers were finally ready
for a candidate from the authentic Left. The election victor,
who’d worked closely with the Working Families Party and
financed his run with nearly $1 million from unions, was a true
movement progressive, at home in the sorts of gatherings where
“Joe Hill” might be sung and people know who Emma
Goldman was. Writing in—where else?—The
Nation, the victor had earlier called for a resurgent Left to get beyond a
mere “checklist” politics of demands and issues to a
more “transformational” sort of politics, which, while
promising to “make our lives better,” would also
require that we “root out the assumptions about politics or
economics or human nature that prevent us” from doing that.
Of finding common ground and reaching across aisles, enough had
been heard already: the real challenge was to “slow down the
bone-crushing machinery of the contemporary conservative
movement.”

These might sound like pages from the 2013 ascension of leftist
New York City mayor Bill de Blasio. But, in fact, the script played
out three years earlier, when New York’s progressives scored
a breakthrough by electing as the state’s attorney general
Eric Schneiderman, who had no prosecutorial experience but, as Ben
Smith noted in a Politico profile the next year, had “spent
his career building an ideological infrastructure for the
left.” After edging out Nassau district attorney Kathleen
Rice by 34 to 32 percent in a five-candidate primary, the Upper
West Side state senator went on to win by 11 points in November
against Republican candidate Dan Donovan. Last year, he won
reelection against GOP challenger John Cahill, this time by a
13-point margin.

New York attorney general
Eric Schneiderman has zealously used his office to pursue cases
favored by left-wing activists.

Unlike his predecessors Eliot Spitzer and Andrew Cuomo,
Schneiderman is not likely to found a cult of personality or
publicly burn with an ambition for higher office. What he does make
a show of doing is to remember the people who put him in
office—labor advocates, community activists, and the sorts of
Upper West Siders for whom progressive ideology is not just an
Election Day predilection but a way of life—and help them get
what they want. And while Schneiderman has clashed repeatedly with
other prominent Democrats, it is a tribute to his staying power
that both President Barack Obama and now Governor Andrew Cuomo saw
fit to lure him into the tent with concessions and recognition
rather than leave him to snipe outside.

Beyond the confines of Washington, D.C., the attorney general of
the State of New York is, in some ways, the public official most
feared by America’s business community, and for reasons that
go beyond the famous tenure of hyperactive AG Eliot Spitzer. (See
“Enforcer-in-Chief.”) While New York may
now be only the fourth-largest state by population, it remains the
nation’s center of finance and marketing. What’s more,
unlike any other state’s attorney general, New York’s
AG can draw on the uniquely prosecutor-empowering Martin Act of
1921, aimed primarily at financial fraud, the scope of which
Nicholas Thompson, now of The New Yorker, summarized in Legal Affairs 11 years
ago:

It empowers him to subpoena any document he wants from
anyone doing business in the state; to keep an investigation
totally secret or to make it totally public; and to choose between
filing civil or criminal charges whenever he wants. People called
in for questioning during Martin Act investigations do not have a
right to counsel or a right against self-incrimination. Combined,
the act’s powers exceed those given any regulator in any
other state. Now for the scary part: To win a case, the attorney
general doesn’t have to prove that the defendant intended to
defraud anyone, that a transaction took place, or that anyone
actually was defrauded. Plus, when the prosecution is over, trial
lawyers can gain access to the hoards of documents that the case
has churned up and use them as the basis for civil
suits.

After wielding such extraordinary compulsory process, New
York’s AG can then, entirely at his discretion, keep the
resulting testimony and documents private or release them in full
or in snippets, affording him a ready means of trying cases in the
press or assisting private groups that may be fighting against the
businesses. As Thompson relates, New York lawmakers armed the
office with such extraordinary powers on the understanding that
they would be used to keep out fly-by-night operators. That was
until Spitzer went back on the unspoken deal and turned the act
against established businesses, quickly bringing Merrill Lynch and
other leading names of American finance to their knees. His
successors have never looked back.

Personnel, as they say, is policy: for his chief of staff, the
newly sworn-in attorney general Schneiderman chose not some career
legal type but the up-and-coming political director of Unite Here,
the hotel union. (His director of advocacy, like his top campaign
advisor, had previously worked for the politically formidable
Service Employees International Union, or SEIU.) And it
doesn’t take long browsing Schneiderman’s official AG
website—with its separate divisions for
“social justice” and “economic
justice”—to know that this is not the attorney general
of Tennessee or Idaho. True, some of Schneiderman’s
projects—a revamp of charities law, closer monitoring of
prescription-drug writing, measures against cell-phone
theft—might also interest a more conservative attorney
general. Equally prominent, however, have been Schneiderman’s
legal efforts directed at the so-called gun-show loophole or his
threats of fraud actions against energy firms for allegedly
overoptimistic projections of the benefits of upstate gas
fracking—though, in that case, Schneiderman was just
borrowing a page from his predecessor, Cuomo, who had browbeaten
utilities into issuing more climate-change warnings—again,
ostensibly, as a matter of investor protection.

For the labor movement, no issue has been dearer in recent years
than the cause of low-wage work, the aim being both legislated wage
mandates and the organizing of low-paid service workers into
unions. Schneiderman has been in the fight all along, pushing hard
on “wage theft”—a term that represents a
continuum of practices, ranging from bald larceny by dishonest
casual-labor jobbers to, say, not paying employees overtime if they
once sent a work-related e-mail from their cell phone after office
hours. He has taken a particular interest in harrying fast-food
operators, the unions’ biggest and most elusive quarry.
Schneiderman is so close with the unions that, when he sought $2
million in extra pay for deliverers from a Papa John’s
franchisee, an official with the SEIU’s Fast Food Forward
coalition learned about the suit—and wrote up a blurb in
praise of it—before the pizza operator had gotten word.

In both New Jersey and New York, so-called price-gouging
statutes—disliked by many economists but popular with
voters—make it a punishable offense to charge high prices for
scarce supplies like fuel or generators during an emergency. In the
aftermath of Superstorm Sandy, as the Wall Street Journal
noted, New Jersey’s attorney general—who usually keeps
a low profile, as he is not elected but appointed by that
state’s governor—decided to go after several retail
stores that he felt had committed well-defined infractions of the
law. Schneiderman, by contrast—and stirring much more press
notice—chose to file subpoenas aimed at exposing the identity
of nameless middlemen (businesses or individual persons—it
wasn’t clear) who had advertised gasoline at high prices on
Craigslist, citing a vague legal provision against the charging of
“unconscionably excessive” prices. Going after
anonymous Craigslist vendors represents a more intrusive kind of
enforcement, one that blurs the lines between public and private,
between regulated businesses and what might turn out to be
homeowners with an extra stock of gasoline in their garage.
Schneiderman’s action left a much wider swath of private
actors feeling as if they were being watched.

In the ongoing battles over the new “sharing
economy” institutions of Uber, Lyft, and AirBnB, the views of
many progressives coincide neatly with the interests of
well-organized players in the New York economy. Though these
services are enormously popular with young and urban consumers,
they are anathema to the serious Left (Salon: “Why Uber Must Be Stopped”) while imperiling the
interests of taxi-medallion owners, hotel operators (and their
unions), and, in some cases, city bus drivers. (While millions of
Americans bridle at the notion of government telling them what they
can do with their homes or cars, New Yorkers—between rent
regulation and alternate-side-of-the-street parking—are used
to it.)

Matthew Feeney of Cato, a specialist in sharing-economy issues,
notes that urban policymakers face a choice when these services
arrive in their cities: they can insist that they conform to every
existing regulation that governs their competitors, from
inspections to commercial licenses; or they can devise new
regulations (or reform old ones) so as to bring the services
largely aboveground, with greater likelihood of imposing on them
taxes, supervision, and methods of consumer recourse. Schneiderman,
he says, “is quite safely in the camp” of the
regulatory hawks. In one celebrated episode, he subpoenaed the
private identity and personal information of tens of thousands of
New Yorkers who had put their units on AirBnB, though the ensuing
furor over privacy led to a “clarification” that the
attorney general’s goal—for the moment, at
least—was only to root out renters of multiple units and
those who had gone into renting units as an occupation.

“Arbitrary and Capricious”

When New York attorney general Eric Schneiderman filed charges
of unlawful redlining against two banks in the Rochester and
Buffalo areas—they had concentrated their lending in the
suburbs—he drew an unusual rebuke from Frank H. Hamlin III,
CEO of another small upstate bank, Canandaigua National Bank and
Trust, which had not been charged. In a letter to shareholders,
Hamlin reassured them that his own bank’s relations with its
regulators “are healthy. I am, however, extremely suspicious
of the arbitrary and capricious manner in which various agencies
(prosecutors) are abusing the legal system in order to further
their own political and economic interests.” And he noted a
foundational problem: “The regulations are vague in
explaining what conduct is actually prohibited.” That gives
enforcers plenty of discretion as to when to file complaints and
against whom.

Hamlin went on to explain that one of the two banks that
Schneiderman targeted “has chosen to merely fold while the
other has chosen to fight. I can understand the decision to fold.
The potential sanctions are severe on both corporate and personal
fronts. One must decide whether to put the livelihood of their
employees and potentially their own personal liberty on the line or
merely cry ‘uncle’ and give the ‘people’
its pound of flesh and go on with life.

“Those who choose to fight are forced to depend upon a
legal system that has mutated its focus from time-honored legal
principle and justice to efficiency and political
expediency,” he wrote. “I can assure you, there is no
such thing as ‘efficient justice.’ ”

Finally, Hamlin warned against assuming that any decision to
fold was an indicator of ultimate guilt. “The reason that 98
percent of prosecutions are settled instead of taken to trial is
not the result of defendants saying, ‘Aw shucks, you caught
me.’ It has to do with a fundamental and reasonable lack of
faith that our legal system is working properly.”

When the letter began to attract press notice, the bank declined
further comment, saying that the letter spoke for itself. Speaking
out is all well and good, but in New York, it’s important not
to rile up the authorities by doing so too loudly.

The hard-charging attorney general has sometimes had to back off
when his overzealousness runs into inconvenient facts.
“Herbal Supplements Filled with Fake Ingredients,
Investigators Find,” shrieked a CBS headline this past February,
heralding what was supposed to be one of Schneiderman’s
biggest enforcement actions—but soon turned into one of his
most embarrassing.

The initial news coverage was breathless. “Many pills and
capsules sold as herbal ‘supplements’ contain little
more than powdered rice and house plants, according to a report
released Monday by the office of New York state attorney general
Eric Schneiderman,” ranThe Atlantic’s report.
“An investigation found that nearly four of five herbal
supplements do not contain the ingredients listed on labels, and
many supplements—tested from among leading store-brand
products sold at GNC, Target, Walmart, and Walgreens—contain
no plant substance of any kind at all.”

The dietary-supplements business has historically benefited from
a congressionally prescribed regime of light federal regulation,
and it had already come under suspicion. Extracts of such plants as
Saint-John’s-wort, ginseng, and echinacea were often marketed
with doubtful and unproved health claims that minimized the risks
of overdose and side effects. Reports had also come in about sloppy
manufacturing and mislabeling: a study last year of supplements
sold as ginkgo biloba, for example, found that a disturbingly high
16 percent did not appear to contain any of the advertised
plant.

But Schneiderman’s February announcement appeared to prove
that the problems were worse than anyone had dreamed. His office
had commissioned its own private tests of popular supplements from
some of the nation’s biggest retailers, and the results were
startling: 79 percent had no trace of DNA from the labeled plants.
There seemed no other explanation but that the business was
dominated by outright fraud. The AG backed up his charges by
sending cease-and-desist letters to retailers, and private
class-action suits followed within days.

But the fraud turned out to be of a rather different sort.
Almost at once, experts in relevant biochemical
fields—including some longtime vocal critics of the
herbal-supplement industry—began to speak out:
Schneiderman’s office had gotten nonsensical results by using
an inappropriate test, one that neither the industry nor its
regulators use to assay final purity. DNA barcode testing, which
searches for a particular snippet of DNA distinctive to a plant,
may be fine when checking the authenticity of a sample of
unprocessed raw plant material. But dietary supplements are made by
extracting the so-called active ingredient, which often means
prolonged heating, use of solvents, and filtering that removes or
breaks down the DNA. The better the purification methods used to
isolate the active ingredient, in fact, the likelier that the
original plant’s identifiable DNA will be lost. Harvard
Medical School’s Pieter Cohen, a leading critic of supplement
marketing, toldForbes that it was “no
surprise” that Schneiderman’s tests came out negative:
“Even if DNA got in, we’d expect it to be destroyed or
denatured.” Meanwhile, GNC, the biggest player in supplements
retailing, went back and retested the accused products from its
line and found, Schneiderman notwithstanding, that all contained
the labeled active ingredient.

As the chorus of scientific criticism grew, Schneiderman’s
office responded with bluster, telling one news outlet: “We
are confident in our testing procedures. The burden is on the
industry to prove that what is on the labels is in the
bottles.” Remarkably, however, it declined to disclose the
methods that its testing consultant had used.

When the attorney general of a state like New York sues a
national company, he virtually always manages to compel a
settlement of some sort: the cost in publicity and the legal risk
of mounting a long-term legal fight are just too high. But
Schneiderman’s settlement with industry leader GNC was not
only quick—it came less than two months after he filed the
charges—but also turned out, in its fine print, to belie
Schneiderman’s inevitable claims of a big consumer victory.
Bill Hammond of the Daily Newssums it up:

The company admitted no wrongdoing, paid no fine and was allowed
to go back to selling exactly the same products manufactured in
exactly the same way.

The AG who weeks earlier had strongly implied that most of
GNC’s products were fake was now affirming that he found
“no evidence” that the company deviated from federal
regulations.

GNC did agree to conduct DNA testing going forward—but
on its raw materials, not the finished products [emphasis
added]. It also agreed to post signs explaining the difference
between plants and processed extracts, in case consumers were
confused about that.

The whole affair inflicted millions of dollars in economic
damage on companies that had done nothing wrong, while sending
consumers around the country into needless spasms of anger, worry,
and outrage. As Hammond writes: “It turns out the one
peddling snake oil was Schneiderman himself.”

Enforcer-in-Chief

Within recent memory, the office of the New York attorney
general has branded defendants as lawbreakers over past actions
that were plainly lawful at the time; imposed penalties under New
York law on activities taking place in other states, even though
neither the other states’ law, nor federal law, would have
imposed penalties; extracted from defendants huge settlements
related vaguely, if at all, to any underlying damages or applicable
fines; and sluiced the resulting cash to politically favored New
York beneficiaries, bypassing the state legislature, despite its
constitutional role as overseer of public spending. These practices
are controversial, but none was invented by Eric Schneiderman or,
for that matter, by his New York predecessors Andrew Cuomo or Eliot
Spitzer. All were first pioneered by attorneys general in other
states.

State attorneys general really took off as players on the
national scene in the 1970s and 1980s, a period in which the number
of staff attorneys in AG offices quadrupled, according to figures
in Paul Nolette’s new book, Federalism on Trial. Once the National
Association of Attorneys General, or NAAG, began to take a more
active role in helping beef up and coordinate formerly scattered
efforts, multistate AG litigation, in which many state offices band
together to file suit, began to grow, from fewer than five cases a
year three decades ago to 40 to 50 cases a year more recently.

Is this a spontaneous upsurge reflecting the decentralized
genius of our system? Not quite: as Nolette explains, Congress was,
in fact, busy over this period funneling federal grants to state AG
offices to build up their strike-force capacity against business
defendants, while revamping laws to give them more enforcement
power. The executive branch helped, too: “[F]ederal agencies
have aggressively promoted [state AG] litigation working
groups,” Nolette writes.

The 1990s tobacco campaign, culminating in a $246 billion
multistate settlement in 1998, changed everything. For one thing,
as I note in my book The Rule of Lawyers, it sent far more
money than anyone had imagined through AGs’ offices,
resulting in logrolling, cozy fee-sharing deals, and outright
corruption. It also encouraged the fateful idea that AGs can and
should bypass the national legislature by, in effect, making new
law on issues of public interest for which progressives lacked the
votes in the U.S. Congress. Thus, as Nolette demonstrates, Spitzer
led a successful challenge to outlaw pharmaceutical pricing
practices that were well known to federal regulators—and that
Congress had declined to disturb—by going to court seeking to
have them redefined as “fraud.” He also tried to use AG
power to achieve nationwide gun control through litigation, though
that effort failed.

When Schneiderman and Cuomo fought their 2014 tug-of-war over
whether banking-settlement money should go toward the attorney
general’s announced priorities or be shifted to the
state’s general fund, they were reenacting a script played
out many times in other states. It’s common for AGs’
offices to keep at least enough money from settlements to cover
their own investigation; state laws vary widely, however, on
whether they have to turn over surplus money to a general fund.
When they don’t do so, the AG office can quickly become a
power center, handing out (in effect) appropriations that bypass
the state legislature’s scrutiny. In states like Arkansas,
Massachusetts, and West Virginia, AG offices have channeled
settlement funds to health nonprofits, police and fire charities,
and agencies of their own choosing within state, county, and local
government. Other favored beneficiaries include legal-aid programs,
bar associations, and law schools—the legal profession being,
of course, a key political constituency of any AG’s office.
With control over big money flows, smart AGs can populate a
political landscape with grateful allies. California AG Bill
Lockyer was famous for doing this; he even once steered $200,000 to
a stridently combative Sacramento pressure group whose activities
included an “Arnold Watch,” which kept tabs on Lockyer
adversary Governor Arnold Schwarzenegger.

Forty-three of the 50 states’ attorneys general are
elected on ballot lines separate from their governors; the job has
become legendary as a power base and springboard to higher office.
With little or no involvement in the nitty-gritty of violent crime
prosecution but near-total discretion over the filing of civil
cases, most AGs are free to focus on popular actions that will reap
uncritical publicity. Targets may murmur privately about
grandstanding demagogues, but they usually want to settle fast and
quietly—especially if they’re respected companies with
a public image to protect. Political rivals hold their tongues,
too, while campaign contributions roll in: hardly anyone wants to
get on the wrong side of his state’s chief law enforcement
officer. Small wonder that Bill Clinton, a former state AG himself,
called it the best job he’d held in politics—and that
was after he’d been elected president.

At the center of the Schneiderman record are the various
settlements made between banking and financial institutions and
state attorneys general. One of the AG’s biggest publicity
hits came early in his tenure, when he derailed an all-but-finished
deal between the other 49 attorneys general and large mortgage
servicers over “robo-signing” and related practices,
saying that it wasn’t punitive enough toward the companies
and should be renegotiated. After winning concessions in that
battle, he pulled a sequel by barging into a nearly completed
settlement between investors’ lawyers and Bank of New York
Mellon, bringing new allegations against the bank. (New York State
wasn’t even a party to that case; Schneiderman’s office
said that it was representing the public interest under what is
known as the doctrine of parens patriae, or the state
suing on behalf of its citizens.) Many of the lawyers who had
negotiated the deals—including, in the robo-signing case,
some of Schneiderman’s fellow state AGs—were furious
with the late-arriving New Yorker for blowing up the product of
months of negotiation. The lawyers felt that, while no settlement
was perfect, battling for another year or two in court would delay
the intended benefit to underwater homeowners.

But the body of opinion leftward of Senator Elizabeth
Warren—what you might call the Occupy or Greek Left—was
smitten. In these quarters, after all, certain articles of faith
prevail: that criminal business misconduct, not foolishness or
error or wrongly stimulative government policy, was the key driver
of the financial bubble and subsequent crash of the 2000s; that the
losses sustained by ordinary people were not primarily a function
of a more general wealth destruction but were siphoned into the
coffers of the superrich; and that these crimes had gone
essentially unpunished, to the lasting shame of the Obama
administration.

Yet the particular legal claims that these settlements address
are, at best, distantly related to the Left’s narrative about
the ultimate meaning of the bubble and crash. Yes, processors did
improperly robo-sign paperwork that they were under obligation to
review individually, much as you or I certify with a click that we
“have read and agree with” contract boilerplate terms
that we have no interest in reading, and much as elected officials
auto-sign constituent mail that they consider to hold no surprises.
A bank that was intent, for whatever reason, on writing a chancy
loan—remember, the critique is that banks were misbehaving
purposefully rather than by foolishness—would have done so
whether or not it had waited until a human had eyeballed each page.
Likewise, if one believes that the bubble immiserated
America’s working classes, it’s not clear that the
ideal fix is a set of securities suits insisting that returns to
investors in securitized mortgages should have been higher, all
culminating in remedies meant to funnel more money to
investors as a class.

But why carp? Even his critics find it hard to deny that
Schneiderman’s willingness to make a nuisance of himself paid
off handsomely over the short and medium term. New York and other
states got more money from the deals—sometimes a lot more.
President Obama, tired of the friction, changed tactics and began
paying the New York AG flattering attention, appointing him to head
an investigatory panel and featuring him prominently at a State of
the Union appearance. Just as the real-estate owner with a blocking
position in a site assemblage can insist on terms, so New York
could play on its holdout status to extract a high ransom in
settlements—at least until the act began to wear thin from
repeated use. And Schneiderman’s aggressiveness is hardly
confined to the banking settlements—he has eagerly pressed
redlining charges (see “ ‘Arbitrary and Capricious,’ ”) and
pursued an expansion of insider-trading laws to cover a broader
swath of behavior.

Altogether, the banking cases yielded billions to New
York’s coffers, some tens of millions of which Schneiderman
directed to legal-services programs, housing counselors, and
assorted “community-development” nonprofits. These
include New York Communities for Change, which shares an office
building with the Working Families Party and is closely intertwined
in its campaigns. “Mr. Schneiderman and the bank negotiated
the terms so that he would be given sole discretion over how to
allocate the money,” the New York Times reported of
one nine-figure fund. That led to further fights: following a
battle with Governor Cuomo, Schneiderman consented to turn over
some of the windfall to the state’s general fund.

One legacy, however, was hard feelings with his fellow attorneys
general—no small matter, since most big cases these days are
multistate actions requiring cooperation and delicate trust among
groups of AGs. In a 2013New York magazine profile, Chris Smith relates how, when Schneiderman
found out that California attorney general Kamala Harris, an
up-and-coming liberal, was unwilling to upset the mortgage deal, he
dispatched his union-trained chief of staff to the Golden State to
start up a ground game against her to motivate her to switch, even
collaborating with Harris’s political rivals to do so. Such
tactics are practically unheard of in the clubby world of AGs.
Short-term, it worked; Harris got on board.

And long-term? One of the liberal lions of state attorney
general enforcement, veteran Iowa AG Tom Miller, was scathing when
he spoke to Ben Smith for his Politico profile of Schneiderman.
“Can a bipartisan group of public officials form an agreement
that furthers the public interest—but that’s not
totally one-sided or the other and that has some elements of
compromise in it? Or can something like this always or usually be
destroyed by the left or the right?” And Miller was
contemptuous of Schneiderman’s charge—repeated on the
AG’s website even today—that the original deal would
have given banks a get-out-of-jail-free card for a wide range of
misconduct. It’s “not going to be a broad
release,” Miller said. “He’s essentially made
that up.”

Insider Trading 2.0

Eliot Spitzer took pride in the idea that, as New York attorney
general, he could impose rules he saw as fair on national
securities markets—regardless of whether the Securities and
Exchange Commission in Washington or judges interpreting federal
securities law went along. His successors have continued in this
vein. Under the federal law of insider trading, for example,
there’s usually nothing illegal about letting your clients
trade ahead of other people on market-moving information that you
yourself have generated. (That’s assuming that you
haven’t obtained the information by, say, violating a trust
of employment or a duty that you have as an actor in an exchange.)
But Eric Schneiderman, in a series of enforcement actions he refers
to as “Insider Trading 2.0,” has sought to enforce a
much broader prohibition. Most notably, he forced Thomson Reuters
to abandon its sponsorship of a University of Michigan
consumer-sentiment survey, which had been predicated on getting for
its own subscribers early access to the survey findings. (The
survey had been sponsored in similar ways since the 1940s, with no
complaint from regulators.)

It all has to do with Schneiderman’s idiosyncratic ideas
about a level playing field, or, as he described it in a speech,
ensuring that America remains “a little more equal than the
rest of the world.” As Gordon Crovitz wrote in the Wall
Street Journal, the underlying principle here would have
banned the original Paul Julius Reuter “from using carrier
pigeons in the 1850s to get news to his subscribers in Europe
faster than anyone else.”

Politically, it’s hard to argue with Schneiderman’s
success. Bill de Blasio is just starting to explore a place on the
national stage, but the New York attorney general is already there,
with a high-profile job not limited to a city constituency.
“An increasingly beloved figure among progressives,” as
Sam Stein called him in 2012, Schneiderman has managed to weather
his famously testy relationship with Cuomo. When Zephyr Teachout
mounted a lively challenge to Cuomo in the Democratic primary, it
was Schneiderman (with de Blasio) who went before a Working
Families Party assembly to urge activists to stand by the
governor.

What’s more, in Schneiderman’s current job, the
political advantages of incumbency are usually decisive: sitting
AGs rarely lose their bids for reelection (New York’s Dennis
Vacco was a rare exception in 1998). Last year, no AG incumbents
lost their general election bids, and only one, a Republican in
Arizona, lost in a primary. While Republicans in recent years have
made considerable inroads into the once-Democratic-denominated AG
ranks, they’ve done so almost entirely by capturing open
seats. That spells years of likely incumbency ahead, should he want
it, for Eric Schneiderman—and for his potential targets,
years of unease about becoming his next target.

Grudge Match

Like his predecessors, Eric Schneiderman has doggedly pursued
what is now a decade-long dispute over charges filed by Eliot
Spitzer against Maurice (Hank) Greenberg, former chairman and CEO
of insurance giant American International Group. Greenberg is a
legend in American business and New York philanthropy (as well as a
trustee of the Manhattan Institute, which publishes City
Journal).

In 2005, Spitzer charged Greenberg and others with fraud over a
reinsurance transaction between AIG and Berkshire Hathaway’s
General Re that allegedly was set up to confer no real risk, thus
evading accounting rules. Spitzer used the splashy charges to
pressure the AIG board into removing Greenberg as chairman and CEO.
In the years since, all the criminal charges and most of the civil
ones against Greenberg have been thrown out or dropped, as has the
monetary relief sought—leaving only two remaining civil
charges, which may reach trial this summer.

The dispute has long since been overshadowed by the federal
government’s 2008 bailout of AIG, though the company’s
assets were sound and soon found to exceed its liabilities.
American taxpayers came out of the AIG rescue with a profit of $22
billion. “Whether A.I.G. would have come close to collapse in
2008 had Mr. Greenberg been allowed to stay remains an open
question,” the New York Times’s James Stewart
wrote this spring.

Schneiderman’s remaining civil charges against Greenberg
rest heavily on the testimony of a former General Re executive
whose credibility a federal appeals court panel has questioned.
Attorney David Boies, representing Greenberg, gained access in
February to formerly sealed investigators’ notes that his
firm says cast further doubt on the executive’s testimony;
the Wall Street Journal editorialized that the revelations
were “reason enough to throw out the entire case,” a
position echoing that of former governor George Pataki and the late
former governor Mario Cuomo, who wrote in a joint 2013 op-ed that
the case against Greenberg concerned “entirely proper
transactions … neither of which had any impact on the net
income or shareholder equity of AIG.”

Though his office has given up its fight for criminal penalties
and for damages, Schneiderman is still seeking to bar Greenberg,
now 90, from working in the securities business or serving as
director of a public company. Wrote Cuomo and Pataki in 2013:
“Mr. Greenberg has never worked in the securities industry,
and he hasn’t been an officer or director of a public company
for eight [now ten] years.” Grudge match? You might call it
that.